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Rating Action:

Moody's assigns first-time A3 IFSR to Aviva-COFCO; outlook stable

 The document has been translated in other languages

14 Sep 2018

Hong Kong, September 14, 2018 -- Moody's Investors Service has assigned an A3 insurance financial strength rating (IFSR) to Aviva-COFCO Life Insurance Co., Ltd.

The rating outlook is stable.

This is the first time that Moody's has assigned a rating to Aviva-COFCO.

Aviva-COFCO is a 50:50 joint venture between Aviva Plc (A2 stable) and COFCO Capital Investment Co., Ltd., which is in turn a subsidiary of COFCO Corporation.

Aviva Plc is the holding company of the Aviva group. The group's main operations are in the UK and it also maintains a significant range of international operations.

COFCO Corporation is one of the largest suppliers by revenue of agricultural and food products in China, and is wholly owned by the Chinese government (A1 stable) through the State-owned Assets Supervision and Administration Commission of the State Council.

RATINGS RATIONALE

Aviva-COFCO's A3 IFSR reflects its diversified distribution channels and product mix and stable profitability. These credit strengths are partially offset by its modest market franchise in China.

Aviva-COFCO maintains diversified distribution channels, which compare favorably to its Chinese industry peers. The agency channel represents its largest premium contributor, generating 30% of the insurer's total premiums in 2017, followed by bancassurance (25%), telemarketing and internet channel (23%), and brokers (18%).

The insurer's product mix is diverse, with 46% of its 2017 total premiums from traditional life products, 34% from health and accident insurance, and 20% from participating products.

Aviva-COFCO has been shifting its product mix towards more longer-term regular premium products with higher margins. More than 50% of its first-year premium in 2017 came from regular-premium products, which provide stable cash flow.

The insurer has also maintained healthy profitability with mortality and morbidity gains, given its focus on protection elements in its products.

Its five-year average return on capital (ROC) registered 6.1% from 2013 to 2017, underpinned by its strength in selling higher-margin health insurance products. Its profitable in-force book helps organic capital generation which supports its solvency position.

However, the insurer's franchise is modest, with a 0.28% market share in terms of 2017 original premiums. Moody's expects that Aviva-COFCO's market share will remain modest, due to increasing competition, because a regulatory clampdown has led to many other players are moving away from selling short-term savings products.

In addition, the insurer's exposure to alternative investments has been increasing in pursuit of higher yield, which dampens its liquidity and asset quality.

Aviva-COFCO's rating benefits from a one-notch uplift from its standalone credit profile of baa1, reflecting the potential support that would be provided to the company in time of stress from Aviva and COFCO.

RATING DRIVERS

Moody's could upgrade Aviva-COFCO's rating if: (1) the insurer achieves a greater scale, in turn leading to a better market position; (2) its profitability consistently improves, with ROC consistently exceeding 12%; and/or (3) its capitalization strengthens, with a comprehensive solvency ratio consistently above 250%.

On the other hand, Moody's could downgrade the insurer's rating if: (1) its capitalization deteriorates substantially, with its comprehensive solvency margin ratio consistently below 150%; (2) its profitability deteriorates substantially, such that it makes consistent operating losses; and/or (3) there is a deterioration in the level of support from Aviva plc or COFCO.

The principal methodology used in this rating was Life Insurers published in May 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Aviva-COFCO Life Insurance Co., Ltd., headquartered in Beijing, was established in December 2002. The insurer offers traditional life, participating and universal life, and accident and health insurance products in China.

At 31 December 2017, Aviva-COFCO's assets totaled RMB30.4 billion and shareholders' equity registered RMB4.9 billion.

The local market analyst for this rating is Qian Zhu, +86 (21) 2057-4098.

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For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Wing Kei Frank Yuen
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Yat Man Sally Yim
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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